Judge Nixes 19 Defendants in Securities Fraud Case

(CN) – A federal judge in New York upheld a decision to drop 19 defendants from a shareholder derivative complaint accusing Take-Two Interactive Software’s officers of backdating stock options.

Richard Lasky, Raeda Karadsheh and Take-Two claimed that 23 of the company’s directors and officers backdated stock options and traded on insider knowledge. Take-Two’s board of directors formed a special committee to investigate the allegations, and decided to dismiss the claims against all but four defendants and assign the remaining claims to Take-Two. The plaintiffs moved to strike the motion to dismiss the claims against the 19 others, saying the investigation had been hampered by “spoiled evidence.” A former officer, Grover Brown, allegedly destroyed notes and a handwritten draft of the investigative committee’s supplemental report, knowing the materials would be discovered in impending litigation. The plaintiffs also sought to exclude the investigative reports from the court’s consideration. U.S. District Judge Laura Taylor Swain noted that the plaintiffs did not dispute Brown’s claim that he regularly destroys handwritten drafts. The judge said the plaintiffs’ assertions about the destroyed documents are based on speculation. “There must be some evidence suggesting that a document relevant to substantiating their claim would have been included among the destroyed files,” Swain wrote. Swain upheld the investigative committee’s decision to drop the 19 defendants, saying the allegations had been “reasonably investigated” and based on sound law.